With the so-called "Bush tax cuts" scheduled to expire at the
end of the year, President Obama and Congress face one of the most
important tax policy decisions in recent years—whether to
raise taxes. Congress is expected to address this question this
month, but it is unclear whether lawmakers will be able to reach
agreement before tax increases take effect in 2011.
According to current law, tax rates on individual income,
capital gains and dividends that were enacted in 2001 and 2003 will
expire Jan. 1, 2011. If Congress fails to pass legislation to
extend the existing rates, the result will be substantial tax
increases for most Americans. In this scenario, income tax rates at
all levels would increase; the 15 percent rate on dividends would
increase dramatically to regular income rates; and the capital
gains rate would increase from 15 to 20 percent.
In addition, the estate tax is scheduled to revert to its
pre-2001 rate of 55 percent. Congressional Republicans claim
allowing these lower tax rates to expire would result in the
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